(20 marks) (Chapter 7) Canada exported its garbage to the Philippines, where it was processed for

many years, until it stopped a few years ago because of politics and moral outrage from many

Filipinos (and some Canadians). Morality is great, but what is the economic case for/against the

practice?

Processing garbage is a toxic activity. Suppose that the marginal cost of each unit of garbage

processed is given by MCC = qC if it is processed in Canada and MC F = 3qF if it is processed in

the Philippines. Canada and the Philippines generate 1,000 units and 200 units of garbage,

respectively.

To begin, assume that each country deals with its own respective garbage.

a. (2 marks) Calculate the total cost to Canada of processing its own garbage. (Hint: while you

will not be marked for it, drawing a diagram might help you.)

b. (2 marks) Calculate the total cost to the Philippines of processing its own garbage. (Hint:

while you will not be marked for it, drawing a diagram might help you.)

c. (2 marks) Briefly explain why the pre-trade arrangement is inefficient. (Hint: compare the

marginal costs.)

d. (2 marks) Briefly explain the relationship between MCC and MC F that would be efficient.

e. (2 marks) Use the result in part (d) and calculate the efficient amount of garbage that should be

processed in Canada and the Philippines, respectively.

f. (2 marks) Use the result in part (e) and calculate how much garbage Canada should export to

the Philippines.

g. (2 marks) Calculate the new total cost to Canada of processing its own garbage. (Hint: while

you will not be marked for it, drawing a diagram might help you.)

h. (2 marks) Calculate the new total cost to the Philippines of processing its own garbage. (Hint:

while you will not be marked for it, drawing a diagram might help you.)

i. (2 marks) Calculate the gain in welfare from Canada exporting garbage to the Philippines.

j. (2 marks) Calculate the range of Pareto efficient amounts that Canada should pay the

Philippines to take its garbage.